Two years in: Reflections on the New York Times paywall

Paywalls, in particular the metered model, have been in the news as recently as this week. On Tuesday the Daily Telegraph announced a UK paywall, building on its existing digital subscription model which, since November, had only applied to international web traffic.

Back in November, the Telegraph described its international paywall as operating under a "New York Time's style 'meter'" model. Today marks two years since the New York Times launched its paywall globally. It was not the first to do so, of course. The Times, Sunday Times and Financial Times in the UK and the Wall Street Journal in the US, to name just a few, had all been running online payment models for some time. And more continue to join the line-up, such as the Washington Post which launched its model last week.

Approaches vary from the 'meter' style, which gives a certain level of access before charges apply, to what is often referred to has a 'hard' wall, such as that in place for the Times in the UK, and which does not offer a free article allowance. There are also joint paywalls across news outlets in countries such as Poland, Slovenia and Slovakia, run by Piano Media.

But the arrival of the New York Times in the market of paying for website content was still a significant moment and was accompanied by much commentary - even before the launch. So, two years on, how is the paywall performing compared to the predictions 24 months ago, how does the news outlet feel the paid-content landscape has changed in the past two years and what have been the key lessons learned along the way?

To find out, we spoke to Paul Smurl, who until recently was the vice president for paid products at NYTimes.com, and is now general manager for core digital products.

The paywall picture two years ago

Taking us back two years, Smurl described the environment for the news outlet in 2011, when it made its paywall move.

"At launch, so back in March 2011, the environment or at least the media opinion about pay was mixed to hostile.

"So we were faced [with] some pretty withering criticism I think from a lot of industry insiders and from a lot of consumers who didn't think this model would work, thought content should continue to be freely available."

The New York Times's decision to go ahead was buoyed by its audience research, which Smurl said "suggested that 40/50 per cent of our audience was willing to pay something, at least something, for unlimited access to our content".

"So that's really what drove us, our customers telling us it's now time or they felt willing to pay for our content online."

The tenor of this conversation and the media coverage of it has changed 180 degreesPaul Smurl, New York Times

Comparing the 2011 environment to today and Smurl said "the tenor of this conversation and the media coverage of it has changed 180 degrees".

"Now well over 300 publishers in the US alone have, since we've launched, launched their own pay models, and you find that people are thinking there is a way to make this work and there is a way to thread the needle.

"And that needle is balanced between advertising, audience, relevance and reach on the one hand, and trying to preserve that and maintain it which we've been able to do, and building a subscription business on the other and getting people to pay."

The success of the metered model, which has been adopted by a number of news outlets in varying forms, has been fuelled in part by the paid-for environment established by certain technology companies, he added.

"Amazon and Apple have kind of conditioned consumers to think about paying for digital content as something more ordinary that it was several years ago, even before we launched in 2011.

"Part of it I think is also the technology that enables us to offer that kind of freemium approach or metered approach and give people a free allotment - in our case 10 articles a month - and then a pay experience on top of that. A lot of those factors combined I think to help support our success."

He added that the tone of conversations around paywalls two years on has developed to being less about "whether to experiment with pay or implement a pay model" and more about "how to experiment with this and how far to go".

"I really feel like the impact - and I wouldn't just attribute it to our move although I think we've had certainly a lot to do with it - but the move to pay is already well underway, as I already said domestically hundreds of publishers have already gone this way."

"... I'd say the impact has been pretty far-reaching and I find that these conversations here in the building with folks who are coming from around the world to talk about this issue can be motivational speeches as much as anything, where you're saying there is some uncertainty but there is undoubtedly a segment of your audience that considers your content very valuable and is willing to pay for it.

"It's a matter of finding them and again asking them, respectfully, to support what you do".

Despite a number of news outlets having thrown their hat into the paywall ring over the past couple of years, Smurl said a level of risk for news companies remains.

"I don't ever think it's a risk that's easy to take because every publication and audience is a bit different... You want to try to understand the differences in your market or in your target audience and tailor it appropriately.

"So there's still some risk but I think it's less risk than what we faced. We sat on the precipice thinking the economics of this model could be a push, meaning we didn't know if it would be immediately profitable. It's wildly exceeded our expectations on that front."

The fears and the reality

Prior to the launch, the team had worried about the impact on traffic to the site as a result of putting up its metered paywall.

"We thought uniques and pageviews could decline potentially in a very meaningful way," he said.

"The reality is two years since launch uniques and pageviews on the website alone, I'm not even thinking about mobile which has grown dramatically, have declined in the order of 10 to 15 per cent domestically, and if you look at our global numbers it's only 5 to 10 per cent.

"I think we were steeling ourselves for much different results and so we were surprised, delighted, by what we've seen in terms of digital subscriber numbers, the effect on unqiues and pageviews, and then surprisingly the impact on our print business.

"We didn't design this model to support print but in fact what we've seen is an increase in home delivery subscriptions, in particular on Sundays, for the last several ABC periods since we launched and an improvement in trend in terms of print cancellations and retention and that has been a surprise to us.

"That's explained I think by the fact that we made the digital subscription product available to our existing print subscribers as part of that subscription, we added hundreds of dollars of value to that subscription overnight and people thought twice about cancelling that subscription because it was much more valuable."

He said that the news outlet has also seen customers buying products such as Sunday and other weekend print titles, both "to reintroduce themselves to the weekend print product but also to get the all access across our digital products".

When it came to the original concerns about falling traffic, the worry about the impact of this "was two-fold", he explained. Firstly it was about "reach and relevance", and secondly there was the financial impact in terms of advertising revenue.

"The reality is, and we knew this of course going into it, that publishers are never sold out of their advertising inventory, there continues to be an oversupply of advertising inventory online.

"And so typically half, sometimes more, sometimes a bit less, of your inventory is sold on a remnant basis on a few dollars, or sometimes even less, on a cpm basis.

"And so what you're doing, if you design the model correctly, you are trading off the ad inventory or advertising that's sold on the margin at those dollar, two dollar cpms, for the benefit of the digital subscription gains.

"And again as I said, when we were sitting there at launch we had done the math and it looked like those neatly offset each other based on our model and on the basis of that we said this is strategic shift. We want to change consumer mindset, and make this move and begin to build this business even if it's not a runaway financial success.

"And what's happened is we were completely delighted and surprised to find it was immediately profitable and exceeded all of our financial expectations."

The latest financial results were published by the New York Times Company in February, for the fourth quarter of 2012, and reported "approximately 668,000 paid digital subscriptions across the company", said to be an increase of 13 per cent on the previous quarter.

The subscription business as a whole including print and digital, has just continued to grow at a very nice clip and the digital business is much more than offsetting some of the secular declines in the print subscription businessPaul Smurl, New York Times

Two years on from the paywall launch and the New York Times is "definitely more financially stable", Smurl said.

This is not only down to the introduction of the paywall, although Smurl said digital subscriptions have "been a huge growth engine for us in the last couple of years".

"The subscription business as a whole including print and digital, has just continued to grow at a very nice clip and the digital business is much more than offsetting some of the secular declines in the print subscription business, primarily on the newsstand sales or single copies sales," he explained.

"As I said home delivery on Sunday is actually growing modestly. So the digital subscription business has had a huge effect on the circulation revenue for us as a company, and circulation revenue is now larger than advertising revenue. We, I think, crossed that line last year.

"So consumer revenue is becoming increasingly important to us."

Other factors include the sale of About.com, he said, as well as "shoring up the balance sheet". This provides the news outlet with "a lot of comfort in our financial position merely because of the cash we have in the bank".

Overall though, he added, the paid content model "has been really the primary source of growth for us over the last couple of years".

Key lessons learned

But as with any new product launch, there has been a learning curve to navigate.

"We screwed up some things and learned along the way, we got some things really right as well," Smurl said.

You need to think about the impact of your decisions including what bundles you introduce, what prices you charge, where you set the gate, how open and flexible you make the content, in the context of the business as a wholePaul Smurl, New York Times

Selecting some of the key points which have arisen over the past two years, he for one, highlighted the importance of "optimising across the business".

"By that I mean you can't simply think about the economic rationale or impact of what happens in digital-only or web-only, you need to think about the impact of your decisions including what bundles you introduce, what prices you charge, where you set the gate, how open and flexible you make the content, in the context of the business as a whole.

"In other words, what effect do those changes have on your profitability across digital advertising and subscriptions, and print advertising and subscriptions."

Those decisions need to be made "based on the impact it has on your bottom line", he added.

"We can all agree as an organisation that that's what we want to optimise for because that funds the journalism which is sort of what we're all about".

The New York Times began its approach "in very siloed terms, in a web-only way", he said. "Then we had an epiphany that allowed us to think about it in a truly cross-platform, cross-product way and got us all rowing in the same direction".

A second lesson learned is that when introducing a paid content model, the news outlet will benefit from having the mindset of "an e-tailer, or an online retailer", he said.

"There was a lot of effort put into building our e-commerce capabilities that we didn't have. That includes the technology underlying it like the meter, like the billing and entitlements e-commerce system we built from scratch - there are off-the-shelf solutions that might work for others but we built that ourselves - like the marketing capabilities, we went out and got people from credit card companies with specific e-commerce experience and got them on the team."

And with that mindset, you commit to "continually improve, and iterate and refine".

Another lesson was in the value of audience research and feedback. "We did rounds and rounds of user testing and customer research," Smurl said.

"Just to give you an example, when we first introduced our version of the gateway that readers would encounter for the first time it was much more of a 'salesy' kind of marketing message and users saw that and told us: 'I hate it and I want to get around it, or avoid it or close it out, it looks like an ad to me. If you want to speak to me speak to me in an editorial voice and create a gateway that has an editorial feel then I'll actually pay attention to it. And just tell me the facts, why are you doing this and what does it mean to me and what do I need to subscribe and then just get out of my way'.

"And so that was a real insight that you only gain I think by bringing readers into the building or going out and talking to them in focus group settings and showing them what you're planning to do and incorporating their feedback. I know it's a basic point but we took that really seriously."

The importance of generosity at launch

Given the concerns about the impact on web traffic, as referred to earlier, the team chose "a pretty generous approach" when it came to lifting the paywall for those arriving at content from "a third-party referrer: search, social or a third-party blog". This approach is still in place now.

"That was important for us to have some porosity in the model to encourage more casual usage and be open to the web and part of the link economy," Smurl said. "That was sort of fundamental and that hasn't changed."

We're going to continue to refine the model over time, at the outset we started I think with a generous allotment in mind and I think that was the right approach given what was at stake in terms of reach and advertisingPaul Smurl, New York Times

Another "generous" feature which has since been "tightened" is the article allowance which started at 20, but a year in was halved to 10.

"We've found that over the fullness of time by tightening it we didn't think that we were going to lose much in the way of audience, pageviews and advertising and we could stand to gain a lot in terms of growing digital subscriptions.

"So we're going to continue to refine the model over time, at the outset we started I think with a generous allotment in mind and I think that was the right approach given what was at stake in terms of reach and advertising."

In some cases the New York Times has even lifted the paywall temporarily to enable coverage of certain big news events to be accessed by all, such as during Hurricane Sandy.

Looking ahead to the next two years

The coming two years will see the New York Times work on both developing "the core bundles" and bringing new "paid products" to market.

"We have an audience of I think roughly 30 million uniques if you look at comScore domestically, and it's more like 40 million plus globally and we have 640,000 digital-only subscribers, so the penetration there is on the order of 1.5 per cent if you're looking at the global number.

"So there's a lot of willingness to pay. Remember the research originally suggested that about half the audience had a willingness to pay something.

"So there's a gap there and it's a matter of finding out what products or price points or needs we can meet by introducing new products, so we're hard at work at that."